ROB D CPA, Inc.- Financial Friday- How to spend your tax return-wisely

Hello and happy Friday!

Have you already received your tax refund?  Will you be receiving a tax refund?  Now how to spend it.  Think about it before you spend it in one place.  Weather it is a little or a significant amount be smart about it, try to stretch it and get more out of it.

The Internal Revenue Service says most of you – somewhere between 75 and 80 percent – are getting one. The average tax refund in 2015 is going to be around $3,539. The IRS knows this because it handed out $26.8 billion

If you don’t have an immediate need, the best bet is to use your refund to reduce or eliminate debt, especially credit card debt.  Credit card debt has re-emerged as a drag on the U.S. economy. The Federal Reserve says credit card debt is up $91 billion from September 2011 to the end of 2014 and now stands at $882 billion.  The average family household owes $5,700 on credit cards.

Surveys show that 91 percent of people say they will use the refund to reduce debt or put into savings, but at least half spend the money shortly after receiving it and not on a needed or required purchase. They view a refund as “free money,” an unexpected bonus check from Uncle Sam that they can spend as they like.  A new computer, big-screen TV or home theatre is a lot more fun use of the $3,539 that suddenly appears in your bank account, but .it won’t provide you any help with your debt.

There are other "smart" ways to spend your tax return, here are 10 ideas. 

1) Start or build up a "fun fund" This account is for things like vacations, large fun purchases such as TV's, or kids activities. 
2) Start or build up your "emergency" fund.  This account is your backup when perhaps you loose a job and need to pay the bills. This is a very important one to start or build because you never know when something might happen.
3) Start or build up your retirement fund- never to late to start this one.
4) Put it back into your house.  Do you have a projects around the house that need to get done, can you refinance for a lower rate?
5) Give it to charity then claim it later. 
6) Start or build up a savings account for your child(ren).
7) Start or build up a college fund.
8) Spend it on something you NEED. There is a difference between something you need and want, don't get caught up in the "free money" thinking.  Think wisely, it is not free money.  You worked hard all year long to get your money back.  Perhaps you need to purchase a new car, use the money on a down payment.  This way you are financing less and saving more on interest. 
9) Invest it.  do your research, make sure you are investing wisely so the money works for you.
10) Go green.  Look into what programs you may qualify in your state there are many energy saving programs that you may receive reimbursement  on.  You will not only reduce your monthly expenses but you will be giving back to the environment.

Bonus tip:  Keep your ears/eyes open for special offers from local retailers.  In some cases,
places will offer discounts or future discounts on purchases if you spend your tax return with them. 

Bottom line is, think carefully, long and hard about what you want to accomplish with the tax refund and be sure you end up doing what you planned.  It really is all about planning ahead and again that actually starts at the beginning of the year.  So also think about it terms of this year.  Do your research or use and accountant who is current on tax issues so you can start thinking about your tax return for next year.  In other words, what can you do now so you can claim it later, it is like doubling your money. SCORE!